We thought the looming recession would curtail consumer spending on weddings, thereby derailing The Knot (KNOT) as it entered new verticals. And we were right. KNOT’s Q2 yesterday was a dud, with bad misses on both EPS ($0.07 vs. $0.09 consensus) and revenue ($28.7 million vs. $31.2 million consensus).
Deutsche has now thrown in the towel. Deutsche understands the unique opportunity KNOT has as the wedding market leader online, but just doesn’t see where any near-term growth is coming from:
While we recognise the large wedding opportunity and the online secular shift of the category, the company faces hurdles in advertising, business reinvestment and execution in its multiple business lines. We do not expect any near-term catalysts as shares will likely be range bound.
Ad challenges come in two fronts: national ads are seeing budget cuts and cancellations, while local ads continue to experience high attrition rates (30%). In addition, the company’s profitability expansion continues to lag on extended reinvestment, which includes its recent acquisition of Bump Media. Lastly, business execution has been spotty in recent quarters with weakness in multiple segments, including registry and publishing.
Deutsche downgrades The Knot (KNOT) from Buy to HOLD, target cut from $16 to $9.
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